Environmental Economics: A Very Short Introduction

Stephen Smith

Description

In this Very Short Introduction, Stephen Smith shows how the field of environmental economics looks at how economic activity and policy can affect the environment in which we live. The book discusses environmental issues including pollution control, reducing environmental damage, global climate change policies, questions about how we should balance environmental and economic considerations, and what form government policies should take. In recent years, Smith reveals, many economists have argued for greater use of incentives such as pollution charges and emissions trading rather than more traditional direct regulation of polluters. Including many illustrative case studies, this book offers an illuminating introduction to an exciting field of economics.

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Environmental Economics: A Very Short Introduction

Stephen Smith

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Stephen Smith, author of Environmental Economics: A Very Short Introduction, gives us an insight into what environmental economists do, what environmental economics is about, and how it measures and influences our impact on the environment. He also explores the steps we need to take to protect it at an international level.

Environmental Economics: A Very Short Introduction

Stephen Smith

Reading Guide

‘Zero pollution is unrealistic and unachievable.’ Do you agree? How much income would you be willing to sacrifice to eliminate pollution?

Consider your own personal carbon footprint, made up of your direct consumption of energy (household energy and motor fuel) and the carbon used to produce the goods and services you consume. What kinds of actions by you and by others would constitute “abatement” of the carbon emissions associated with your carbon footprint? How would you think about the “marginal abatement cost” involved in these actions? (For example, if one of the actions you could take would be to cut out one overseas flight and holiday nearer home instead, how would you assess the marginal abatement cost that you incur in making that change?) Do any of these costs involve spending money, or are they a matter of a sacrifice in living standards instead?

Economic analysis of pollution control advocates spending resources on reducing pollution (i.e. on abatement) up to the point where the ‘marginal abatement cost’ of an additional unit of pollution abatement equals the ‘marginal damage cost’ of the last unit of pollution abated. What is the significance of the word ‘marginal’ in this analysis? From the point of view of society as a whole, what is significant about this outcome?

Why would it be inefficient for two firms with different marginal abatement costs to face the same pollution control requirement? In this situation, what allocation of pollution abatement between the two firms would minimise the total cost of achieving a given reduction in pollution. Would this least-cost outcome impose an equal burden on the two firms? Why might a regulator have difficulty achieving this outcome using conventional ‘command-and-control’ regulation? How might it be easier to achieve this outcome using economic instruments (such as an emissions tax)?

‘The first 10 years of the US Acid Rain Program showed that an emissions trading system can achieve deep cuts in industrial emissions more rapidly and cheaply than would be possible with conventional regulation.’ Do you agree?

Since the book was written, the experience of the US Acid Rain Program has been less positive (see the paper in Schmalensee and Stavins in Further Reading below). Does this more recent experience show that emissions trading is an unreliable way of controlling pollution?

Why are emissions trading allowances often ‘grandfathered’ (handed out free to existing polluters)? Governments could raise considerable revenue if they sold them by auction instead. Would this be better?

‘Environmental valuation techniques and cost-benefit analyses put a price on the environment, but show that economists know nothing about real value?’ Is this fair criticism?

How much can we learn from the pattern of house prices about the harm caused by local pollution and the benefits that people enjoy from local environmental amenities?

Is ‘contingent valuation’ a useful tool to assess the scale of environmental costs and benefits that would otherwise be hard to value, or is it meaningless nonsense?

Much of the analysis in this book is developed in the context of pollution problems such as air and water pollution. How far are the ideas discussed also relevant to other environmental issues such as waste and recycling, biodiversity, landscape protection, environmental risks and hazards, etc?

Why has it been so difficult to reach a comprehensive international agreement on climate change to control global emissions of greenhouse gases? What have been the main negotiating obstacles? How can these be overcome?

A large part of the ‘carbon footprint’ of consumption in western industrialised countries consists of carbon emissions in the course of producing manufactured goods imported from elsewhere – for example, carbon emissions from energy used in manufacturing goods in China for export to the United States. How should these ‘embodied’ emissions be reflected in international negotiations over the emissions reduction targets of different countries. Should China or the US be responsible for these emissions? What difference would this make?

Do countries with more stringent environmental policies than elsewhere risk losing jobs and income when firms relocate production to other countries with lower environmental standards? Is this process of industrial relocation undesirable? Does the answer depend on whether the environmental problem is local or global in nature?

‘If we put a price on pollution, the rich can afford to pay for a clean environment, and the poor cannot.’ Is there a difference between environmental and economic justice?